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John Rawicki, PhillipCapital

BUY RECOMMENDATIONS

Whitehaven Coal (WHC)

Chart: Share price over the year to versus ASX200 (XJO)

With a market cap of $2 billion, this coal producer and developer is yet to see a meaningful share price bounce. Highly leveraged to a declining Australian dollar, the company is producing thermal and metallurgical coal. Coal prices are expected to start firming up in coming months. With the company on track to start selling coal from Maules Creek in December 2014, we believe there’s plenty of upside from here.

Crown (CWN)

Chart: Share price over the year to versus ASX200 (XJO)

An integrated resorts and gaming business, the company has indicated it will consider paying a dividend at the end of the year or in early 2014. The outlook for the Macau gaming market remains strong, and Crown’s Macau Studio City project is on track to open late 2016. The business enjoys a strong cash position (US$300 million) and will benefit from a declining Australian dollar.

HOLD RECOMMENDATIONS

Telstra (TLS)

Chart: Share price over the year to versus ASX200 (XJO)

The telecommunications giant reported strong quarterly earnings recently, but provided no guidance on next year’s dividend. Enjoying sizeable market share in the mobile phone space, Telstra may face stiffer competition from other providers in the future. If Coalition wins office in September, NBN payments may be delayed and hamper any increase in dividends.

Wesfarmers (WES)

Chart: Share price over the year to versus ASX200 (XJO)

A large and stable conglomerate with defensive attributes, Wesfarmers is benefitting from a successful turnaround in the Coles business. The company has also sold 10 Bunnings properties to BWP to generate $271 million in cash. It’s likely that the company will sell more properties from its portfolio, further bolstering its cash position.

SELL RECOMMENDATIONS

Tabcorp Holdings (TAH)

Chart: Share price over the year to versus ASX200 (XJO)

I expect a softer Australian economy to weigh on Tabcorp’s revenue growth in the medium term.  Wagering turnover grew by only 0.5 per cent in the 2012 fourth quarter. Turnover in its Victorian operations actually declined 8 per cent.  Although growth is expected to resume when the economy picks up, I see better value elsewhere for now.

BWP Trust (BWP)

Chart: Share price over the year to versus ASX200 (XJO)

BWP is a listed managed investment scheme. It invests in commercial real estate, mainly Bunnings Warehouse properties. I believe that BWP is aggressively priced compared to other REITs, recently trading at a 24.9 per cent premium to its NTA (net tangible assets). This compares to other passive REITs trading at an average 1.4 per cent discount to their NTA. In my view, better risk/reward can be found outside of BWP.

 

Peter Day, Macquarie Private Wealth

BUY RECOMMENDATIONS

Flight Centre (FLT)

Chart: Share price over the year to versus ASX200 (XJO)

We attended a travel conference where the major discussion areas focused on currency impacts, airline capacity and market outlook. There’s some concern around the implications of a weaker Australian dollar on outbound traffic, although we highlight foreign airlines keep growing into Australia. FLT remains well positioned to increase corporate share in Australia, with a strong balance sheet and scope for upside dividend surprises.

JB Hi-Fi (JBH)

Chart: Share price over the year to versus ASX200 (XJO)

JBH recently reported a 11 per cent increase in net profit to $116.4 million. The new JB Hi-Fi home brand will be expanded from eight stores in 2013 to 18 in 2014. It could potentially rise to 50 in the next three years. Despite weakness around retail in general, JBH is exploiting its market leadership, segment expansion and new business opportunities to generate a good revenue and earnings outlook.

HOLD RECOMMENDATIONS

Cochlear (COH) 

Chart: Share price over the year to versus ASX200 (XJO)

COH reported 2013 earnings of $132 million in line with our consensus. With Nucleus 6 deferrals and currency headwinds almost behind it, the outlook for COH is beginning to improve. Ongoing growth for the company, however, is highly dependent on implant unit growth, which, at the moment, is a concern.

IRESS  (IRE)

Chart: Share price over the year to versus ASX200 (XJO)

IRE announced the acquisition of Avelo Financial Services for $360 million. Avelo offers an extensive blue chip customer base to achieve immediate scale in the UK. A key positive is that competition in next generation wealth products appears limited. We lift our recommendation from a hold to a sell.

SELL RECOMMENDATIONS

ASX Limited (ASX) 

Chart: Share price over the year to versus ASX200 (XJO)

July volumes receded from very active levels in recent months across cash, equities, derivatives and listings. Interest rate futures volumes fell to 7.5 million contracts, down from a record June (12.3 million contracts) and below the full year 2012 monthly average of 8.5 million contracts. ASX is 0.7 per cent below adjusted pre-raising levels, as optimism around recent volumes hasn’t been sustained into July.

Stockland (SGP)

Chart: Share price over the year to versus ASX200 (XJO)

We retain our underperform recommendation following the group’s full year 2013 result. Statutory profit fell 79 per cent to $104.6 million. The company says this is largely due to a previously disclosed impairment in the value of the residential book. Underlying earnings per share were down 24 per cent on 2012 to 22.4 cents. The outlook is challenging.

 

Peter Moran, Wilson HTM

BUY RECOMMENDATIONS

National Australia Bank (NAB)

Chart: Share price over the year to versus ASX200 (XJO)

The UK business has been a negative for years and is part of the reason it trades at a discount to the other banks. We are seeing some signs of an improving UK economy, and believe it’s now likely we will see a meaningful reduction in bad and doubtful debts by 2014, leading to a material increase in NAB’s earnings.

Rio Tinto (RIO)

Chart: Share price over the year to versus ASX200 (XJO)

RIO’s results were broadly in line with our expectations. More importantly, the company is now on track to achieve its 2013 cost reduction target of $2 billion. We remain positive about the cost reduction story. Attractive earnings multiples (a price/earnings of 10 times) at recent current prices is behind us retaining our buy recommendation. 

HOLD RECOMMENDATIONS

Transurban Group (TCL)

Chart: Share price over the year to versus ASX200 (XJO)

Full year 2013 results were in line with expectations and we see risk to guidance being to the upside. However, the stock has risen from $6.10 in early March to close at $6.89 on August 13. The toll road operator is trading at a premium to our valuation so we retain our hold recommendation.

UGL (UGL)

Chart: Share price over the year to versus ASX200 (XJO)

Earnings for this engineering and services group were disappointing with margins falling and the order book declining more than expected. Reported net profit after tax was down 75 per cent to $36.5 million. The property demerger has been delayed until financial year 2015. There are minimal catalysts for re-rating the stock in the next 12 months, so we have downgraded to a hold.

SELL RECOMMENDATIONS

ALS Limited (ALQ)

Chart: Share price over the year to versus ASX200 (XJO)

ALQ’s recent acquisition of energy group Reservoir makes sense as it diversifies into the oil and gas laboratory analysis market. However, we anticipate it will take several years before it begins to increase earnings per share. At the same time ALQ’s traditional analytical testing business remains under pressure as miners seek to reduce their expenses.

David Jones (DJS)

Chart: Share price over the year to versus ASX200 (XJO)

DJS has entered into an agreement for Dick Smith to manage its consumer electronics business. We see the news as positive, but with DJS on a forecast 2014 price/earnings ratio of 16 times and trading at a premium to our valuation, we see better value in other retailers.

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Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.